Andreas Ortmann and Mark Schlesinger
Trust, repute and the role of non-profit enterprise

This article examines the trust hypothesis: the claim that asymmetric information can explain the
existence of non-profit enterprise in certain markets. We argue that this hypothesis, in order to be
viable, has to meet three challenges: 'reputational ubiquity', 'incentive compatibility' and
'adulteration'. Drawing on modern agency theory, we conclude that the trust hypothesis stands on
shaky ground. It can be sustained only under particular conditions that have been neither carefully
described in theory nor subject to empirical assessment. The available evidence, patchy and
inadequate as it is, seems to suggests that there are some ownership-related differences in aspects
of organisational performance connected with asymmetric information. However, there is little
evidence that this relates to trust per se or provides a rationale for the existence of non-profit
ownership in these industries. We conclude with a plea for substantial research on consumer
expectations and provider motivations.

Ideology and altruism are central to understanding the non-profit charitable sector. This paper
addresses three questions. Why do people make charitable gifts? Why do they usually give to
non-profit organisations? When can non-profits run by committed ideologues compete with
profit-oriented entrepreneurs in the provision of services? The altruistic motives of individuals and
the ideological commitments of entrepreneurs come together to support charitable organisations. The
non-profit form provides a weak guarantee that gifts are not being syphoned off as profits.
Furthermore, independent non-profits can often better reflect donors' desires than public agencies
constrained by majoritarian claims, and ideological entrepreneurs can use the non-profit form to
reify their beliefs without being accountable to profit-seeking investors. A non-profit organisation
can only survive, however, if it can attract money and customers. Sometimes its ideological character
will facilitate both tasks. Non-ideological customers may, nevertheless, patronise an ideological
non-profit if the entrepreneur's commitment helps to guarantee high quality.

Bruce R. Kingma
Public good theories of the non-profit sector: Weisbrod revisited

Burton Weisbrod's 1975 article, 'Toward a theory of the voluntary non-profit sector in a three-sector
economy', models non-profit organisations as suppliers of public goods which are undersupplied by
government to heterogeneous populations. This article examines the implications, extensions and
empirical tests of the Weisbrod theory. It also examines the theories of pure and impure altruism,
the heterogeneity hypothesis, and the various 'publicness' indexes of non-profit output. The
commonalities between the public good model and the trustworthiness model of non-profit organisations
are also explored.

Michael Krashinsky
Stakeholder theories of the non-profit sector: one cut at the economic literature

This article examines and organises the economic literature dealing with non-profit institutions
using the concept of 'stakeholders'. In general, the literature identifies conflicts between various
groups of stakeholders and then proceeds in two very different directions. The first is supportive of
the non-profit sector, suggesting that non-profit organisations resolve those conflicts more
effectively than other types of institutions. This provides a positive theory of the non-profit
sector, explaining that non-profit institutions evolve when they are more effective in providing a
particular good or service than other possible institutional arrangements. The second direction is
more critical of the non-profit sector, suggesting that those conflicts will persist in non-profit
institutions and will require some kind of resolution, including perhaps government intervention. Of
course, a stakeholder approach to non-profit theory focuses on conflict and ignores some other views
of the sector.

Christoph Badelt
Entrepreneurship theories of the non-profit sector

This article summarises the main results of entrepreneurship theories of the non-profit sector and
discusses the impact they may have on theory development and on the real world non-profit sector. It
is pointed out that the entrepreneurship approach advances our knowledge of the non-profit sector,
especially by stressing the supply-side aspect and by focusing on the preferences individuals must
have in order to engage in non-profit activities. There is empirical evidence consistent with
entrepreneurship theories. Yet most observations do not exclusively support entrepreneurship theories
but also provide evidence consistent with other economic theories of the non-profit sector. This
illustrates that the various economic theories of the non-profit sector are more complements than
substitutes. Furthermore, entrepreneurship theories indirectly help to improve the image non-profit
organisations have in the real world; therefore they play a prominent role in teaching programmes
which have been established to train non-profit managers.

Richard Steinberg
Overall evaluation of economic theories

This article evaluates economic theories of the non-profit sector by their ability to enlighten our
understanding of the scope of inquiry, the determinants of the size and scope of the non-profit
sector, and the behavioural responses of donors, volunteers, paid staff and non-profit organisations
to changes in their external environment. Adherence to a non-distribution constraint has proven to be
a useful way of delimiting economic analysis of non-profit organisations, but more attention should
be paid to alternatives. Economists have been less successful at developing usable distinctions
between voluntary action and exchange. The size and scope of the sector appear to be determined by
entrepreneurial supply factors, donations (which in turn are influenced by tax policy, governmental
spending, fund-raising, and the quality and mixture of organisational outputs, commercial or
charitable), commercial activities, capital supply, the supply of labour (paid and volunteered), the
marketability of outputs, and the distribution of consumer characteristics. Variations of James's
(1983) model have proven useful to predict the reaction of non-profits to erogenous changes.